The FTSE 100 Index pulled back for three consecutive days as companies exposed to the ongoing US-Iran war slipped and as the UK published a strong inflation report.
It also dropped as market participants waited for the upcoming UK corporate earnings. It has dropped by over 2% from its highest point this week.
UK inflation to worsen as ceasefire continues
The FTSE 100 Index pulled back as concerns about the UK economy continued. A report released on Wednesday showed that the headline consumer price index (CPI) rose to 3.3% in March this year as oil, gas, and transport costs jumped.
The elevated inflation numbers mean that the Bank of England will find it hard to cut interest rates in the near term, as investors were expecting. This explains why Gilt yields jumped after the report.
Worse, there is a possibility that inflation will continue rising after the US announced an open-ended ceasefire after the Iranians failed to attend talks in Pakistan.
This ceasefire means that the Strait of Hormuz will continue being closed in the near term. Trump has announced a blockade against Iranian ports and has started ceasing some of the ships. Iran, on the other hand, took three ships this week.
As a result, companies exposed to the crisis have been among the top laggards this week . Rolls-Royce share pricecrashed by over 3.3% on Wednesday, while IAG dropped by 3.4%. The two companies are exposed to the aviation industry, which will slow down because of the jet fuel shortage.
Some of the other top laggards in the FTSE 100 Index were Melrose Industries, Reckitt Benckiser, and JD Sports. Reckitt stock dropped after the company published weak financial results.
On the other hand, oil and gas prices have been among the top gainers recently, with BP and Shell hovering near their all-time highs. The other top gainers were companies like Glencore, Rio Tinto, Metlen Energy, and Antofagasta.
Looking ahead, the FTSE 100 Index will react to the upcoming earnings dump next week. BP and Barclays will be the first big names to publish their numbers next week.
They will be followed by companies like AstraZeneca, Lloyds Bank, GlaxoSmithKline, Haleon, and Endeavor on Wednesday. Standard Chartered and Natwest will also release their numbers next week.
FTSE 100 Index technical analysis
Footsie stock chart | Source: TradingView
The daily timeframe chart shows that the FTSE 100 Index has pulled back in the past few days, moving from a high of £10,687 to the current £10,475. This pullback happened after it formed a double-top pattern, a common bearish reversal sign.
On the positive side, the index has remained slightly above the 50-day Exponential Moving Average (EMA). Also, there are signs that it is slowly forming an inverted head-and-shoulders pattern.
Therefore, the most likely scenario is where the stock drops in the coming days and then resumes the uptrend, potentially to the all-time high of £10,920.
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